Buying Vermilion Energy for Growth and Income

I recently discovered Vermilion Energy (TSX:VET), a Canadian oil and gas producer which is listed on both the TSX and NYSE exchanges. In the last decade, it returned 25% annually. Since it is a mid cap company, it’s more stable than a small cap, while has higher growth than a large cap. My research indicates that it provides a safe dividend with a current yield of 4%. With its low payout ratio, there’s also potential for future dividend growth. Enrolling in Vermilion Energy’s dividend reinvestment program allows dividends to be reinvested with a 3% discount.

Here’s a summary of my research:

    1. Vermilion Energy has stellar historical returns, returning 25% annually in the last 10 years.
    2. It has an S&P credit rating of BB-.
    3. Between 2013 and 2016, it plans to grow production by 55%, and to grow funds from operations by 60%.
    4. Since 2003, Vermilion has paid a monthly dividend, and has never cut it. It currently yields 3.9%.
    5. Since 2003, the payout ratio has been in a downtrend. That led to 2014’s dividend growth, and potential for further raises in future years.
    6. Because Vermilion Energy focuses its business in 3 core areas: Canada, Europe, and Australia, Vermilion has an international diversification advantage, contributing to its relatively high operating netback, and a high operating margin compared to its peers.
    7. Vermilion Energy’s total return beats all its Mid Core peers in the 1-year, 3-year, 5-year, 10-year, and 15-year periods.
  1. Analysts estimate a one-year total return of 18%-21% at Friday’s closing price, depending on whether an investor is buying it on the NYSE or TSX.
  2. Its reserve life index is over 12.3 years, so there’s plenty of time for it to run.
  3. Amid smelling the roses, let’s not forget about its thorns. Vermilion Energy’s business performance is affected by four main factors:
        • Commodity prices of oil and gas;
        • Foreign exchange rates between the euro, the Australian dollar, the U.S. dollar, and the Canadian dollar;
        • Its production and sales volumes; and
        • The government regulations and income tax regimes of where Vermilion is doing business.

Read my full article at Seeking Alpha: A Gem in the Energy Industry: Buying Vermilion Energy for Growth and Income

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Disclosure: At time of writing, I’m long TSX:VET.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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